Chinese investors eye Australian office, retail assets

John Talbot

BIO

John Talbot leads and manages Jones Lang LaSalle’s Investment and Advisory platform in Australia across the key service line areas of Sales and Investments, Valuations and Advisory and Research and Consulting. John has had direct involvement in over AUD $4 billion of major asset sales over the last 10 years.

Australia is the second most popular destination, after Hong Kong, for Chinese capital in the Asia-Pacific region. Photo: SCMP Picture

Australia is currently on the radar for Chinese investors. Behind Hong Kong, Australia is the most popular destination for Chinese capital in the Asia-Pacific region, with almost A$350 million (HK$2.8 billion) invested in the Australian commercial real estate market over the last four years.

The big focus for this investment has been office and retail assets. The largest deals have been office towers in Sydney and Melbourne – 1 York Street in Sydney was purchased by HNA for A$117 million; 120 Clarence Street in Sydney by China Southern Airlines for A$10 million; and 119 William Street in Melbourne by Hengyi for A$45 million.

Large retail deals have included Bridgepoint Shopping Centre in Sydney – purchased by a private Chinese investor for A$43 million and Underwood Marketplace in Brisbane by the Shunxin Yin Discretionary Trust for A$51 million.

Australia continues to receive a disproportionate share of global capital, as the market has delivered solid returns between 1994 and last year. Returns for commercial property in Australia are underpinned by a high income return (generally between 7 per cent and 9 per cent), while the volatility of returns has historically been lower than the mature markets of the US and Britain.

One of the hurdles, however, for increased offshore investment into Australia is a lack of product. Over the medium- to long-term, new product will be required to meet the large appetite for prime-grade office assets. In last year, offshore investors accounted for 30 per cent of sales in the Australian commercial market – an all-time record. We expect these investors to remain active over the medium-term, but they will face more competition from local AREITs.

A number of domestic wholesale funds have successfully completed capital raisings over the past 18 months and are continuing to deploy this capital into the market. However, the good news is that this widening buyer pool with the amount of money looking for assets is expected to support asset values in the Australian market.